PPG's $22 billion offer for AkzoNobel is rejected

ChristopherAlessi

Dutch paints and chemicals maker Akzo Nobel NV said Thursday it has rejected an unsolicited EUR20.9 billion ($22.1 billion) offer from U.S. peer PPG Industries Inc., in the latest sign that no company is immune from being targeted in the rapid wave of consolidation engulfing the global chemicals industry.

Amsterdam-based Akzo said PPG made an offer of EUR54 in cash and 0.3 PPG shares for each Akzo share, corresponding to a value of EUR83 a share.

Akzo, which counts Dulux, Sikkens, Interpon and Eka among its brands, said PPG's proposal substantially undervalues the company and isn't in the interest of its shareholders. The company, which employs 46,000 people in around 80 countries, said its board has carefully reviewed and considered PPG's proposal and unanimously rejected it.

"The proposal contains serious risks and uncertainties," Chief Executive Ton Büchner said in a statement. "I firmly believe that Akzo Nobel is best placed to unlock the value within our company ourselves," he added.

PPG confirmed the proposal, saying it continues to believe there is strong strategic rationale for the deal and that it would now consider its next steps. It added that a combination would create a strong competitor in a highly competitive market by bringing together complementary products and technologies, as well as strengths in different parts of the world.

Mr. Büchner said PPG's approach had prompted Akzo to announce plans to explore separating its specialty chemicals business, including establishing the unit as an independent listed entity. The business, which reported revenues of EUR4.8 billion in 2016, produces a range of chemicals used in construction, industrial and consumer goods.

The spurned offer sets up a standoff between two of the world's oldest industrial companies. Akzo Nobel was created in 1994 from the merger of paint and chemicals companies in Sweden and the Netherlands that dated back more than a century, including a chemicals firm founded by Alfred Nobel, who launched the prizes that bear his name. Akzo later acquired two of Britain's oldest paint and chemicals firms.

PPG, founded in 1883 as Pittsburgh Plate Glass Co., was the first U.S. company to successfully market large sheets of glass, until then an expensive rarity. It quickly expanded into chemicals to secure a supply of raw materials and was an early supplier of the automotive and aviation industries.

Mr. Büchner, who took over the top job at Akzo in 2011, has presided over a comprehensive restructuring and led the company back to profitability. But he has in the past resisted separating the specialty chemicals unit because it has been the group's "cash cow," said Markus Mayer, an analyst with Germany's Baader Bank.

"The market would love that Akzo would spin off specialty chemicals," Mr. Mayer added.

Such a move would be in line with PPG's interests were it to come back with a revised bid, analysts said. If Akzo was already in the process of separating its specialty chemicals business, the ultimate sale of the unit could help PPG in refinancing its acquisition of Akzo.

Analysts and investors seemed to support the idea of a PPG takeover of the Dutch company. Akzo's share price was up 12% in morning trading at EUR72.32.

A tie-up would be "credible and potentially powerful," analysts at Bernstein Bank noted. Analysts at Citigroup said the "strategic rationale" for a deal was high, though noted overlap of some business areas could raise antitrust concerns in Europe.

The offer comes amid a period of consolidation in the chemicals industry. U.S. giants Dow Chemical Co. and DuPont Co. are in the process of completing a $120 billion merger, and have offered to sell businesses to gain approval from the European Union's antitrust regulator.

Industrial gas giant Praxair Inc. and Germany's Linde AG created a combined entity worth $66.6 billion after it agreed to a merger in December.

After a record year of mergers and acquisitions activity in the industry, consolidation is likely to continue in chemical industries across the board, Baader's Mr. Mayer said. He cited a low growth environment, cheap financing and overcapacity in many markets.

Thursday's proposal isn't the first time PPG has courted Akzo. In 2012, the Pittsburgh-based company bought Akzo's North American house-paint business for $1.05 billion.

In December PPG launched a restructuring program in an effort to save $120 million to $130 million a year because of a slowdown in global demand and weaker-than-expected growth in Europe.

Akzo became one of the world's largest paints makers after it acquired U.K. rival Imperial Chemical Industries Ltd. in 2008 for GBP8 billion ($12.9 billion). But the Dutch company struggled to digest the debt-financed acquisition, which raised its exposure to Europe's troubled automotive and construction industries, culminating in a series of profit warnings in 2011. It has since slashed costs and laid off staff.

At close of business Wednesday, Akzo had a market capitalization of $17.12 billion, while PPG's was $27.47 billion.

Write to Christopher Alessi at christopher.alessi@wsj.com and Ian Walker at ian.walker@wsj.com

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